Manufacturing Expands for Eighth Month Straight

April 6, 2010

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The U.S. manufacturing industry grew for the eighth consecutive month in March, expanding at the fastest pace in more than five years and indicating that the manufacturing recovery is gaining momentum.

Although consumer demand levels and unemployment remain key concerns in the United States economy, manufacturing continues to grow, having expanded at an accelerating pace last month thanks to stockpile adjustments and climbing export rates for manufactured goods. The strengthening rebound is a promising sign for the broader industrial sector.

According to the Institute for Supply Management's latest manufacturing ISM Report on Business, the nation's manufacturing industry expanded for the eighth consecutive month in March, growing at its fastest pace since July 2004. Meanwhile, the overall U.S. economy expanded for the 11th month in a row.

ISM's monthly purchasing managers' index (PMI), a key indicator of manufacturing performance, rose from a seasonally adjusted 56.5 percent in February to 59.6 in March. Readings over 50 percent indicate growth. The 3.1 percentage-point increase in the PMI last month indicates that manufacturing is expanding at an accelerating rate. The PMI remained well above the 51.8-point 12-month average.

ISM's new orders index also climbed by 2 points, production increased 2.7 points and prices rose by 8 percentage points. Manufacturers' inventories also grew by 8 points to reach 55.3 percent in March, finally crossing over into growth. However, the employment index dropped 1 percentage-point.

"Although the Employment Index decreased ... signs for employment in the sector continue to improve as the index registered a 10 percent month-over-month improvement, indicating that manufacturers are continuing to fill vacancies," Norbert J. Ore, chair of ISM's Manufacturing Business Survey Committee, said. "The Inventories Index provided a surprise as it indicated growth for the first time following 46 months of liquidation — perhaps signaling manufacturers' willingness to increase inventories based on expected levels of activity."

According to the ISM findings, 17 of the 18 manufacturing industries reported growth last month: apparel; textile mills; electrical equipment; appliances and components; miscellaneous manufacturing; transportation equipment; machinery; computer and electronic products; paper products; petroleum and coal products; food and beverages; furniture; nonmetallic mineral products; fabricated metal products; wood products; printing; chemical products; and primary metals.

Experts attribute much of the March gains to stockpile adjustments.

"The extremely favorable March ISM report was helped by the inventory swing that has moved from slower destocking at the end of last year to restocking," Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, wrote in an analysis of the report. "Markets for materials and components are tight as manufacturers report slower deliveries and significant price increases."

These changing inventory levels may signal a rise in demand or greater optimism about near-term purchasing shifts. But perhaps the most significant development in the March findings is the gathering momentum of the manufacturing expansion.

"This growing manufacturing muscle is one reason that most economists now dismiss the possibility that the U.S. or other major economies will experience a double-dip recession," the Wall Street Journal reported.

According to the latest business outlook survey from tax advisory firm KPMG International, a net balance of 65.7 percent of U.S. manufacturing executives expect business activity to increase over the next 12 months.

Despite positive indications, there are lingering concerns over how the upswing will affect employment and whether investment spending will rebound to healthier levels.

"Manufacturing is the 'canary in the coal mine' for the general economy," Meckstroth wrote. "An improvement in the pace of manufacturing activity is confirmation that the overall economy will continue to expand. What is needed though, and we expect will happen soon, is that the economic growth translates into job growth."

Earlier

Manufacturing Grows for Seventh Consecutive Month

Resources

March 2010 Manufacturing ISM Report on Business Institute for Supply Management, April 1, 2010

MAPI Analysis: ISM Report Confirms Economy is Moving in 'Right Direction' by Daniel J. Meckstroth Manufacturers Alliance/MAPI, April 1, 2010

Factories Revive Economy by Sudeep Reddy, Marcus Walker and Andrew Batson The Wall Street Journal, April 2, 2010

Global Business Outlook Survey KPMG International, March 29, 2010

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